The London-based Official Monetary and Financial Institutions Forum, headed by an ex-Financial Times scribe – managing director David Marsh – on Monday released a 24-minute audiotape of a teleconference they held nearly two weeks ago with Yanis Varoufakis, the former Greek finance minister.
Details of the call were first revealed by the Greek daily Kathimerini, and much of most sensational revelations Varoufakis made were about a surreptitious project he and a small team of aides worked on to set up a parallel payments system that could be activated if the European Central Bank forced the shutdown of the Greek financial system.
But Varoufakis also made some other interesting allegations, including claims the International Monetary Fund believes the Greek bailout is doomed and that Alexis Tsipras, the Greek prime minister, offered him another ministry shortly after he was relieved as finance minister.
We’ve had a listen to the entire call, and transcribed most of it – excluding some inconsequential asides to the teleconference’s hosts, Messrs Marsh and Norman Lamont, the former UK finance minister.
The recording starts with an apparent interruption of the speakers; the teleconference operator announces that the call is now being recorded. Then Varoufakis begins:
"The thing is, I have to admit we did not have a mandate for bringing Greece out of the euro. What we had a mandate to do was to negotiate for a kind of arrangement with the eurogroup, with the European Central Bank that would render Greece sustainable within the eurozone.
The mandate went a bit further, at least in my estimation. I think the Greek people had authorised us to peruse energetically and vigorously that negotiation to the point of saying that if we can’t have a viable agreement, then we should consider getting out.
The problem was that, once you are inside the grasps of a monetary union, it is ever so hard to create the kind of public dialogue which is necessary in order to prepare people for what comes, for the process of disengagement from the currency union, while at the same time not precipitating a collapse.
It’s a little bit like, imagine if you had to prepare a population, an electorate, for a devaluation, a very large devaluation, 12 months before it takes place, through a dialogue. You can understand that this is an impossibility. We don’t have a currency which we can devalue vis-à-vis the euro. We have the euro. What I keep telling people is that, in our estimation, it would have taken 12 months."
Varoufakis is then interrupted by Marsh, who suggests the Greek government was weakened by not having a viable Grexit plan in place during negotiations with its creditors and asks whether Varoufakis believes Grexit is still possible.
"Oh absolutely, absolutely, I think this agreement is not viable and Dr Wolfgang Schäuble, the German finance minister, is hell-bent on effecting a Grexit, so nothing is over.
But let me be very specific and very precise on this. The prime minister, before he became prime minister, before we won the election in January, had given me the green light to come up with a Plan B. I assembled a very able team, a small team, as it had to be, because that had to be kept completely under wraps, for obvious reasons. And we’ve been working since the end of December, beginning of January, on creating one.
Let me give you, if you are interested, some of the political and institutional impediments that made it hard for us to complete the work, and indeed to activate it. The work was more or less complete, we did have a Plan B, but the difficulty was to go from the five people who were planning it to the 1,000 people that would have to implement it. For that, I had to receive another authorisation, which never came."
Then Varoufakis goes into the main revelations that everyone has focused on: his efforts to create a parallel payment system by hacking into the country’s tax system.
"Let me give you an example. We were planning along a number of fronts, I’ll just mention one. Take the case of the first few moments when the banks are shut, the ATMs stop functioning and there has to be some parallel payment system by which we keep the economy going for a little while to give the population the feel that the state is in control and that there is a plan.
What we planned to do is the following. There is the website of the tax office, like there is in Britain and everywhere else, where citizens, taxpayers go into the website, they use their tax file number, and they transfer through web banking monies from the bank account to their tax file number so as to make payments on VAT, on income tax, and so on and so forth.
We were planning to create, surreptitiously, reserve accounts attached to every tax file number without telling anyone. Just to have this system function under wraps and at the touch of a button to allow us to give PIN numbers to tax file number holders, taxpayers, so when, let’s say – take for instance the case where the state owes €1m to some pharmaceutical company for drugs purchased on behalf of the National Health Service. We could immediately create a digital transfer into that reserve account of the tax file number of the pharmaceutical company and provide them with the PIN number so that they could use this as a kind of parallel payment mechanism by which to transfer whichever part of those digital monies they wanted to any tax file number to whom they owed money, or indeed to use it in order to make tax payments to the state.
That would have created a parallel banking system while the banks were shut as a result of the ECB’s aggressive action, to give us some breathing space. This was very well developed and I think it would have made a very big difference, because very soon we could have extended it using apps on smart phones. It would become a functioning and functional parallel system. Then of course this would be euro denominated, but at a drop of a hat, it could be converted to a new drachma.
Now let me tell you, and I thank this is a quite fascinating story, what difficulties I faced. The general secretariat of public revenues, within my ministry, is controlled fully and directly by the troika. It was not under control of my ministry, of [unclear] ministry, it was controlled by Brussels. The general secretary is appointed, effectively, through a process that troika-controlled and the whole mechanism within. It’s like Inland Revenue in the United Kingdom being controlled by Brussels. I am sure as you’re hearing these words, your hair is standing up. Ok. So problem number one.
The general secretariat of information systems, on the other hand, was controlled by me as minister. I appointed a good friend of mine, a childhood friend of mine, who had become a professor of IT at Columbia University in the States, and so on, I put him there because I trusted him to develop the system. At some point, a week or so after we moved into the ministry, he calls me up and says to me: “You know what, I control the machines, I control the hardware. I don’t control the software.” The software belongs to the troika-controlled general secretariat for public revenues.
What do we do? So we had a meeting, just the two of us, nobody else knew. He said: “Listen, if I ask for permission from them to start implementing this programme then the troika will immediately know we are designing a parallel system.” Well, I said, “That won’t do, we don’t want to reveal our hand at this stage.” So I authorised him, and you can’t tell anyone that, this is totally between us, to hack…"
At this point, Lamont interrupts Varoufakis to remind him there are others on the call, adding “they will not tell it to their friends.” Varoufakis chuckles:
"I know, I know, I know they are. Even if they do, I’ll refute, I’ll deny I said it.
So, we decided to hack into my minister’s own software programme in order to be able to bring it all, to just copy, just copy the codes of the tax systems’ website onto a large computer in his office, so he can work out how to design and implement this parallel payment system. We were ready to get the green light from the prime minister when the banks closed in order to move into the general secretariat of public revenues, which was not controlled by us but is controlled by Brussels, and to plug this laptop in and to energise the system.
I’m trying to convey to you the kind of institutional problems that we had, and institutional impediments to carrying out an independent policy for ameliorating the affects of having our banks being closed down by the ECB."
Lamont then interrupts Varoufakis, calling the revelations “truly shocking”, adding “I won’t ever forget that”. He then asks whether Varoufakis thinks debt relief will ever be granted as part of the new bailout programme.
"My great worry at the moment on behalf of my good friend Euclid Tsakalotos…is that the IMF and Dr Schäuble and the ESM are engaged in a game that is absolutely the opposite of straight forward. On the one hand, we’re being told the ESM will only provide this must-discussed loan of more than €80bn if the IMF is on board. The IMF is coming out with debt sustainability analyses which quite clearly, stated for direct quotes, that the Greek debt is not sustainable and according to its own rules the IMF cannot participate in any new bailout. I mean, they’ve already violated their rules twice to do so, but I don’t think they will do it a third time. I think they are kicking and screaming that they are not going to do it a third time.
So there is a very serious danger here that the Greek parliament – not in my name, but in the name of the majority who voted last night – will approve the very stringent measures, reforms they call them but they are nothing but cost-cutting exercises without much reforming going on. But anyway, that we will push through parliament these prior actions, as they’re being called, but then at the end of the day, the ESM and the IMF will not be able to coordinate so as to provide that huge loan. Not that I want that huge loan to be provided…but I think there is a major battle between the institutions, the ESM, the European Commission, the IMF and Dr Schäuble.
Dr Schäuble and the IMF have a common interest: they don’t want this deal to go ahead. Wolfgang has quite clearly said to me he wants Grexit. He thinks this extended attempt is unacceptable. This is the one point where we see eye to eye. I agree with him, too, for completely different reasons, of course. The IMF does not want an agreement because it does not want to have to violate its charter again and to provide new loans to a country whose debt is not viable. The Commission really wants this deal to go ahead, Merkel wants this deal to go ahead. So what has been happening over the last five months is now projected into the very short term, only it is on steroids – that is this complete lack of coordination between the creditors."
Marsh then takes the floor to ask about France, noting that Varoufakis has in the past argued that Berlin is being overly tough with Greece in order to send signals to Paris.
"The French are terrified. They’re terrified because they know if they’re going to shrink their budget deficit to the levels that Berlin demands the Parisian government will certainly fall. There is no way that they can politically handle the kinds of austerity which is demanded of them by Berlin. And when I say by Berlin, I mean by Berlin, I don’t mean Brussels. I mean Berlin.
So they are trying to buy time. This is what they’ve been doing now, as you know, for a couple of years. They’ve been trying to buy time in terms of an extension of the time period during which they will have to reduce their deficit to below 3.5 per cent, 3 per cent, the Maastricht criteria in the Stability and Growth Pact.
At the very same time, Wolfgang Schäuble has a plan…. This is one of the very sweet moments in one’s life when one does not have to theorise, because all I did was to convey the plan as Dr Schäuble described it to me. The way he described it to me is very simple. He believes the eurozone is not sustainable as it is. He believes there has to be some fiscal transfers, some degree of political union. He believes for that political union to work without federation, without the legitimacy that a properly-elected federal parliament can render, can bestow upon an executive, it will have to be done in a very disciplinarian way. He said explicitly to me that a Grexit, a Greek exit, is going to equip him with sufficient bargaining power, with sufficient terrorising power in order to impose upon the French that which Paris is resisting. What is that? A degree of transfer of budget-making powers from Paris to Brussels.
Lamont then asks about the ECB. He notes that there has been a lot of vitriol aimed at ECB president Mario Draghi from Athens, accusing him of acting politically during the crisis. But Lamont argues Draghi has “bent over backwards” not to be political during the Greek standoff.
Mario Draghi has handled himself as well as he could, and he tried to stay out of this mire, the political mire, impressively. I have always held him in high regard. I hold him in even higher regard now, having experienced him over the last six months. Having said that, the European Central Bank is set up in such a way that it is so highly political, it is impossible not to be political.
Don’t forget the ECB, the central bank of Greece – because that’s what the ECB is, it’s the central bank of all our member states – the central bank of Greece is a creditor of the Greek state, and therefore it is also [break in audio] once it is the lender of last resort, supposedly, and the enforcer of fiscal austerity. Now, that violates, immediately, the supposed distinction between fiscal and monetary policy. It puts Draghi in a position where, in acting as a creditor when we came into power, he had to discipline us, he had to actually asphyxiate us sufficiently in order to yield to the demands of the creditors, while at the same time keeping our banks open. So God could not do this in a non-political way."
Then Marsh asks a final two-part question: first, is it important that Greece finally become part of the ECB’s bond-buying programme, known as quantitative easing (QE), and secondly, what are Varoufakis’ future plans – and what is his relationship with Tsipras like now? For those not following the crisis closely, Greece has been shut out of the ECB’s QE programme since its inception because its rules bar any country that is undergoing a bailout review from having its bonds purchased by Frankfurt.
"What the ECB is doing is increasing ELA by €900m in order to give a little bit more liquidity through the ATMs that were very severely circumscribed up until now. The question of quantitative easing is I think crucial. If Greece does not get onto the bandwagon of quantitative easing over the next few months, then that’s it. There’s absolutely no way that Greece can stay in the eurozone.
But for this to be meaningful, first they need to restructure the Greek debt. The idea of the German government, that we would first have to successfully complete a programme that cannot be completed successfully and then we can have debt restructuring, effectively annuls the whole idea of quantitative easing.
On the question of my relationship with Alexis, look, I have a very strong personal relationship with him…. Yesterday, I voted against him. I crossed the floor. It was very painful for me. I could see he was very upset by that. We met afterwards, he was sitting down, I was passing by him, he extended his arm very warmly. I sort of went towards him and we hugged, and kissed even. There is this.
But at the same time, at the moment what I’m experiencing is this, you know, I’ve become the traitor of the party. You know how it feels when you cross the floor suddenly. You cross the floor not because you shifted, but because everybody else has shifted. They’ve undergone a mutation. Suddenly they have adopted the language that I’ve been countering for the last six years – with them. But now they have adopted it.
So I’m not sure what kind of relationship we’re going to have. Up until yesterday Alexis was very keen to say to me that he will definitely need me. He offered me another ministry only a few days ago. I said no because I don’t care about having a ministry. What I care about is a sustainable Greek debt, a sustainable Greek economy.
What we’re doing now, whatever the reasons are, the measures we introduced yesterday through parliament will choke the Greek private sector, a private sector that has already suffered so much in Greece over the last five years. I’m going to stay in parliament. I really love being a backbencher. I have only been a backbencher for a week, and it’s great. It gives me the opportunity to speak out, and to write and to visit friends outside of Greece."
Marsh wraps up the teleconference by noting there were 84 callers from around the world, and reminding everyone Varoufakis’ remarks were under the so-called Chatham House rules, which means the information can be passed on but Varoufakis should not be cited as the source of the information.
